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A mountain of lawsuits weighs heavily on Bell

The city is being sued by a bank and by ex-officials charged in corruption case. It in turn is suing its former lawyers and former city leaders. Federal investigators are scrutinizing bond sales.

February 02, 2013|By Jeff Gottlieb, Los Angeles Times
  • Bell may have fresh leadership and a born-again attitude, but the city is a long way from being out of the woods. Former city leaders are suing the city. Bell is suing the former leaders. The city is suing its former lawyers. A European bank is suing Bell.
Bell may have fresh leadership and a born-again attitude, but the city is… (Allen J. Schaben, Los Angeles…)

It just might be easier to build a courthouse in Bell.

As six former city leaders stand trial on corruption charges, the small Los Angeles County city is facing a mountain of legal challenges, any one of which could bankrupt the town. And federal investigators are continuing probes into the city's once-leaky finances.

Bell may have fresh leadership and a born-again attitude, but the city is a long way from being out of the woods.

Full coverage: Crisis in Bell

Former city leaders are suing the city. Bell is suing the former leaders. The city is suing its former lawyers. A European bank is suing Bell.

City Manager Doug Willmore, the first permanent chief executive in town since Robert Rizzo was fired after his extraordinary salary was revealed, said Bell is now spending $1.6 million a year on legal bills, four times the average for a city its size.

"The time I spend on litigation is quickly approaching half, which is just enormous," he said. "And it's basically all scandal-related."

The law firm that has served as Bell's city attorney for the last 20 months said that it has represented the city in more lawsuits and hearings in that time than in all 34 years it has worked for Lawndale, a South Bay city that's only slightly smaller than Bell.

"The volume of litigation for a city the size of Bell is unprecedented," said Anthony Taylor, an attorney for the city.

Besides the lawsuits, the U.S. Securities and Exchange Commission and the Internal Revenue Service are continuing to investigate bond sales under former City Manager Robert Rizzo, including $50 million for a sports complex in the park-starved city.

"As I looked at all the data, I think the bonds were a big part of the scheme to get them [city officials] more and more money," Willmore said. "Why else would they continue to borrow all that money and not spend it on the projects they were supposed to spend it on?"

Willmore said potential penalties could include fines and lead to millions of dollars in damages.

Bell's biggest concern is a lawsuit filed by Dexia Credit Local, part of a European banking group, over the city's default on $35 million in bonds. The case involves 25 acres of undeveloped land near the 710 Freeway that Bell bought from the federal government with plans to lease it to a railroad.

Dexia bought all the lease revenue bonds the city issued to pay for the deal, which came to more than twice the city's annual budget.

The deal went bad when an environmental group sued, arguing the city had failed to conduct the required environmental review. The judge agreed. Unable to lease the property — now worth far less than the bonds — Bell had no income to pay back Dexia.

If the judge rules for Dexia, Willmore said Bell would have no choice but to declare bankruptcy, falling in line behind Stockton and San Bernardino as cities that went bust.

Bell contends the land deal was illegal, because, among other reasons, it was never put before voters. "The transaction was outrageous, and we think it clearly violated California law," Willmore said.

In a related lawsuit, Bell is suing Nixon Peabody, one of the largest law firms in the country, for its role as the city's bond counsel in the Dexia and other bond deals. The suit alleges fraud, malpractice and that the firm overcharged the city.

Bell has another malpractice suit, this one against former City Atty. Edward Lee and his former firm, Best, Best & Krieger, a well-known municipal law group. A memo from current City Atty. David Aleshire called the case "asleep at the switch claims," contending Lee gave the city poor advice and allowed much of the corruption to take place.

The suit also alleges that Lee and his firm failed to give Bell proper advice on the Dexia deal.

Full coverage: Crisis in Bell

Willmore said he is worried about lawsuits filed by Rizzo and Angela Spaccia, the former assistant city manager, who also has been charged with corruption, and former Police Chief Randy Adams, demanding the city pay their legal costs. Their cases are based on the California government code and provisions in their contracts that said Bell would pay their attorneys fees to defend them for work they did for the city.

Adams, who was paid $457,000 a year, making him one of the highest-paid chiefs in the country, has not been charged.

His attorney, Thomas O'Brien, submits a bill of about $580,000 to the city each month, which the city files and ignores.

Willmore estimated the combined legal fees for the three already have reached nearly $3 million. Once the trials of Rizzo and Spaccia start later this year, the costs "balloon up the wazoo," Willmore said.

Rizzo and Spaccia have sued Bell for breach of contract over their firings in the summer of 2010, after The Times reported the city manager was earning a salary of nearly $800,000 a year and Spaccia close to $400,000.

The city has turned around and sued Rizzo and Adams, trying to recover their huge salaries and part of the $20 million Bell estimates it lost in the corruption scandal.

Full coverage: Crisis in Bell

Bell also faces a lawsuit from Eric Eggena, who was in charge of Bell's code enforcement. He has sued for $837,000, which includes 329 unused sick and vacation days. Eggena was fired at the peak of the corruption investigation, and L.A. County district attorney's investigators searched his house. He has not been charged.

So far Bell has not sued its former accounting firm, Mayer Hoffman McCann, which the state fined $300,000 and put on two years' probation. The firm failed to find any of the financial problems in Bell that pushed it to the brink of insolvency.

A scheduled mediation session could determine whether the city files suit.

jeff.gottlieb@latimes.com

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